Personal Mortgage Interest Deduction: Understanding The Limitations On Deductibility


The personal mortgage interest deduction is a valuable tax benefit that many homeowners take advantage of to reduce their taxable income. However, as with any tax benefit, there are specific limitations and rules that govern its use. Understanding these limitations can help homeowners maximize their deductions and minimize potential tax liabilities. In this article, we will explore the personal mortgage interest deduction and its limitations to provide a comprehensive understanding of this tax benefit.

What is the Personal Mortgage Interest Deduction?

The personal mortgage interest deduction is a tax benefit that allows homeowners to deduct the interest paid on their mortgage from their taxable income. This deduction is applicable to both primary residences and qualified second homes. The mortgage interest deduction is designed to encourage homeownership by making it more affordable, as it effectively reduces the cost of borrowing money to purchase a home.

Limitations on the Mortgage Interest Deduction

1. Mortgage acquisition debt limit:

The mortgage interest deduction is limited by the amount of mortgage acquisition debt. As of 2021, the deduction is limited to the interest paid on the first $750,000 of mortgage debt ($375,000 if married and filing separately). This limit applies to mortgages taken out after December 15, 2017. For mortgages taken out before this date, the limit is $1,000,000 of mortgage debt ($500,000 if married and filing separately).

2. Home equity debt limitation:

Homeowners can no longer deduct interest paid on home equity loans or lines of credit unless the funds are used to buy, build, or substantially improve the home that secures the loan. This change took effect in 2018 as part of the Tax Cuts and Jobs Act (TCJA) and applies to loans taken out after December 15, 2017.

3. Second home limitations:

Interest paid on a mortgage for a second home is deductible, but it is subject to the same mortgage acquisition debt limit as the primary residence. The combined mortgage debt for both properties cannot exceed the applicable limit ($750,000 or $1,000,000, depending on when the mortgage was taken out).

4. Itemized deductions:

In order to claim the mortgage interest deduction, taxpayers must itemize their deductions on Schedule A of Form 1040. This means that taxpayers who choose to take the standard deduction cannot also claim the mortgage interest deduction. Homeowners should evaluate whether itemizing deductions or taking the standard deduction is more advantageous for their tax situation.

5. Rental properties:

The mortgage interest deduction does not apply to rental properties. Interest paid on a mortgage for a rental property is considered a business expense and should be reported on Schedule E of Form 1040.

6. Mortgage insurance premiums:

Mortgage insurance premiums are not deductible as mortgage interest, though they may be deductible as a separate itemized deduction, subject to income limitations and other restrictions.


The personal mortgage interest deduction can provide significant tax savings for homeowners who qualify. However, understanding the limitations on this deduction is crucial to ensure proper compliance with tax regulations and to maximize the available tax benefits. Homeowners should consult with a tax professional to determine the best course of action for their individual circumstances.

[1]This article was written by and was edited for accuracy by Daniel J. Rohr, CPA/PFS, EA, M.S. Tax.